Diesel cars likely to get costlier

Diesel cars are likely to get costlier after Budget 2013-14. The finance ministry is re-examining a proposal to levy an additional excise duty on diesel cars across categories — small, medium as well as SUVs. Indications are that, if implemented, prices of diesel cars may go up by Rs. 50,000-125,000.

Petroleum ministry officials disclosed that during its recent pre-budget consultations with the finance ministry, it was discussed that in order to discourage diesel consumption by car owners, the proposal on additional excise duty needs serious reconsideration.

A committee, headed by economist and energy expert Kirit S Parikh, had proposed levying an additional excise duty of Rs. 80,000 on diesel vehicles. “While greater fuel efficiency of diesel vehicles should not be penalised… an additional excise duty on a diesel vehicle corresponding to the differential tax on the petrol should be levied,” the committee said.

“Finance minister P Chidambaram is examining the proposal… the argument is that the rich should not get subsidised fuel,” a government official said.

Following a huge gap between the prices of petrol and diesel – Rs. 21.04 at present in Delhi – there has been a spurt in diesel consumption. The consumption growth rate in 2011-12 was 7.8%, up from 6.7% in 2010-11. In contrast, consumption growth rate in petrol declined from 10.7% in 2010-11 to 5.7% in 2011-12.

The domestic automobile industry has always opposed any proposal to increase excise duties on diesel cars, preferring the deregulation of diesel fuel prices instead. In the last one year, sale of diesel cars surged by 40%, while that of petrol cars declined by 15%, largely due to the rising price differential between the two fuels.

“I don’t think a diesel tax on cars should happen," said Pawan Goenka, president (automotive), Mahindra and Mahindra. "Instead, the price difference between the two fuels should reduce to around 20%.”